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3 Jun 2015
Short NZD/USD remains attractive into RBNZ meeting – DB
FXStreet (Barcelona) - Robin Winkler, Strategist at Deutsche Bank, explains the key reasons behind a bearish view for NZD/USD, and further notes that from a risk-reward perspective a short trade for the pair remains attractive.
Key Quotes
“First, while our baseline sees the RBNZ cutting twice by September, as outlined in our recent FX Blueprint, the market prices only a 50% chance of an OCR cut next week and a cumulative 35bps of easing by September.”
“In the past years, the RBNZ has increasingly guided market expectations to avoid sharp reactions. It is important in this context that the market has incrementally raised the probability from only 14% the day after the last meeting without significant retracements. We believe the RBNZ would have verbally intervened by now if it did not consider rates pricing to be drifting in the desired direction.”
“Net short positioning remains remarkably light even in comparison to the cautious pricing in the rates market. This would limit any short-covering in case the RBNZ keeps its powder dry, whilst leaving ample scope for NZD to weaken meaningfully if the RBNZ delivers.”
Key Quotes
“First, while our baseline sees the RBNZ cutting twice by September, as outlined in our recent FX Blueprint, the market prices only a 50% chance of an OCR cut next week and a cumulative 35bps of easing by September.”
“In the past years, the RBNZ has increasingly guided market expectations to avoid sharp reactions. It is important in this context that the market has incrementally raised the probability from only 14% the day after the last meeting without significant retracements. We believe the RBNZ would have verbally intervened by now if it did not consider rates pricing to be drifting in the desired direction.”
“Net short positioning remains remarkably light even in comparison to the cautious pricing in the rates market. This would limit any short-covering in case the RBNZ keeps its powder dry, whilst leaving ample scope for NZD to weaken meaningfully if the RBNZ delivers.”